Tax relief for second home owners and buy-to-let landlords halved

The Government is cutting Capital Gains Tax relief on the sale of additional properties from 2015.

In one of the 'blink and you'll miss it' announcements of this year's Autumn Statement, the Government announced the halving of a tax break for people who own more than one home.

This is designed to crack down on the practice of 'flipping' second homes to reduce the amount of Capital Gains Tax (CGT) paid.

How 'flipping' works

Flipping is where buy-to-let landlords or second home owners tell HMRC a property they own other than their main home has now become their primary residence, usually for a very short period. They then 'flip' back their main home for tax purposes to the home they actually live in. Technically you can flip homes as often as you want.

The reason they do this is to try to take advantage of Private Residence Relief, which allows the sale of the property to be exempt from up to three years of CGT if it has been a person's main home at any point.

Flipping was one of the major scandals of the MPs' expenses investigations, with many MPs changing their main residence multiple times to benefit from this relief.

The Private Residence Relief period is now being halved to 18 months, although experts are warning this could hit people who divorce or whose circumstances change, but cannot sell their main home quickly.

This will be introduced from April 2015, following a consultation next year on how it should be administered.

The Treasury estimates this change will lead to an increase of £65 million in CGT paid in the tax year 2015/16, £90 million in the following year, and rising to £105 million in 2018/19.

Property commentators say the change in the rules could lead to a surge of homes being put up for sale.

Should buy-to-let landlords face further changes?

A recent report by think tank the Intergenerational Foundation estimates the total cost of buy-to-let landlords' allowable expenses that they offset against rent is around £3-£5 billion each year.

It is particularly critical of the 'wear and tear allowance', which allows landlords who let furnished property to claim back 10% of their net rental income to cover depreciation of the fixtures and fittings. The Intergenerational Foundation is calling for this to be abolished.

In the report, issued prior to the Autumn Statement, it also wanted Private Residence Relief to be cut back to six months.

The people who affect house prices

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.